Understanding Climate Policy with Economic Tools – by Richard Tol


Climate change is a problem that is unprecedented in its scale, scope, duration, complexity, uncertainty and inequity. The debate about climate policy is muddled, confused, confusing, ill-informed, hysterical and acrimonious. It need not be. Climate change is a difficult issue, but not beyond human wit. Richard Tol, Professor of Economics at the University of Sussex, explains how his new book on climate economics offers the reader a set of tools that, if properly applied, can shed light on the aims and implementation of climate policy.

My textbook Climate Economics: Economic Analysis of Climate, Climate Change, and Climate Policy, presents economic tools and methods to think about climate change in a way that is accessible to anyone who has been exposed to two years of undergraduate study in economics – and indeed to the intelligent layperson who is willing to make an effort. More experienced economists will recognize most of the tools, although climate economics occasionally veers into arcane topics. In a few cases, standard methods have been shown to be brittle in the face of climate change, and climate-specific methods have had to be developed.

The book is not about methodology, however. It is about using the tools of economics to think through the problems of climate, climate change and climate policy. This requires two additional pieces of information: Numbers and preferences.

Climate economics is an applied branch of economics. When confronted with a real-life problem, you cannot hope to contribute to a solution by assuming the size of the impacts or the of the second partial derivative. Rather, you need to measure these things or at least make an informed guess.

A substantial part of the book is therefore devoted to a discussion about the size of the problem and the size of potential solutions. As most numbers on climate are as soft as butter, I actually pay more attention to what is behind the estimates and how alternative assumptions push the numbers up or down and by how much. In this sense, a course in climate economics becomes a course in critical thinking.

Climate policy is public policy. Any analysis has to grapple with the three basis questions, the positive “what if?” as well as the normative “so what?” and “what to do?” Decisions made or not made affect many, often all, people today as well as centuries from now – and in ways that are profoundly uncertain and extremely varied.

tol book

Climate Economics: Economic Analysis of Climate, Climate Change and Climate Policy – by Richard Tol

There is no simple definition of good, better and best in this situation – indeed, there is none. A concern for climate change coincides with a concern for the distant future, remote probabilities, or people in faraway lands. The text explores how alternative preferences suggest alternative policy targets. I also discuss what might lead you to adopt one position or the other, but that decision is not mine but yours.

Climate policy is not just about setting targets. Implementation is at least as important. The book treats the optimal choice of policy instruments, including for the long-term which is mostly about directing, maybe even accelerating technological progress towards energy that is affordable, reliable, convenient, abundant and carbon-free. A sharp contrast is drawn between these scholarly recommendations and actual climate policy.

The year is 2014. Committing words to paper is so last century. The textbook is sufficiently general that it should last for a decade or so. There is an accompanying website that features data, quizzes, slides, updated reading material. Over time, draft chapters of a second edition will appear there. There is a blog on interesting policy discussions and academic papers, and a curated bibliography. There is a Facebook page for discussions and a YouTube channel for video. In this manner, I hope to combine the best of the old – a defined reference point – and the new – flexibility, interactivity, and infotainment.


tol Richard S.J. Tol is a Professor at the Department of Economics, University of Sussex and the Professor of the Economics of Climate Change, Institute for Environmental Studies and Department of Spatial Economics, Vrije Universiteit, Amsterdam, the Netherlands. Formerly, he was a Research Professor at the Economic and Social Research Institute, Dublin, the Michael Otto Professor of Sustainability and Global Change at Hamburg University and an Adjunct Professor, Department of Engineering and Public Policy, Carnegie Mellon University, Pittsburgh, PA, USA. He has had visiting appointments at the Canadian Centre for Climate Research, University of Victoria, British Colombia, at the Centre for Social and Economic Research on the Global Environment, University College London, and at the Princeton Environmental Institute and the Department of Economics, Princeton University.  He specialises in the economics of energy, environment, and climate, and is interested in integrated assessment modelling. He is an editor for Energy Economics, and an associate editor of economics the e-journal.

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